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A Case for CASY (Question of the Week)

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I wish there were a Casey's General Store here in Colorado so I could visit one. In spite of their aggressive growth plans, they haven't reached the Rocky Mountains yet; so I'll have to rely on financials when deciding whether to invest. They look reasonable to me despite their profit-margin drop recently due to the price of gas. Oddly, the stock price has recently surged despite their announcement of more modest profits. Perhaps investors were heartened by the fact that at least they still HAVE profits and a dividend. In addition, they have a both a DRIP and a Direct Purchase Plan which is a good investor relations move.

I'd like to compare Casey's with 7-Eleven but unfortunately the latter is private. Looking at "Competitors" in Yahoo and Google finance, larger companies such as Kroger, Safeway and Winn-Dixie are listed. IMHO that is comparing apples to oranges because the customers are different. A few years ago, I read an article about convenience stores that said most of the food products sold there were consumed minutes after being bought. It is the store of preference for laborers who need to fill up the truck with gas and fill up themselves with food as quickly as possible between tasks. I can confirm this because my boss owns both the investor relations firm I work for and also a small landscaping/snow-removal company. The company credit cards are used for gas and food-on-job.

Casey's offers a MasterCard, with no annual fee, good for rebates on everything but higher on items bought at Casey's (including gas). If they were in this area, would my boss get the card and mandate using Casey's? 7-Eleven recently introduced a credit card but offers no details on their Website about possible savings when buying their products. In 7-Eleven's favor, they sell money orders and prepaid phone cards, including an international one. Unfortunately they don't give details on long-distance rates; however if they have exceptionally good rates to Mexico that is another point in 7-Eleven's favor as a competitor. The biggest question is where the customer can get the most bang for the buck.

Casey's is somewhat different from other convenience stores per the company description at Reuters. "The Company's General Stores seek to meet the needs of residents of small towns by combining features of both general store and convenience store operations.... Each Casey's General Store typically carries over 3,000 food and nonfood items. The products offered are those found in a supermarket, except that the stores do not sell produce or fresh meats and selection is limited to one or two well-known brands of each item stocked."

This looks like a good niche to me. When the landscapers I mentioned did a job in the mountains last summer they barely broke even due to costs. They had the choice of spending an arm and a leg eating at higher-priced tourist restaurants or spending a lot on gas to get to a grocery store. (Better planning would have helped, of course; however, being used to city and suburbs, they were surprised by the rural environment.) Hometown Mom and Pop stores have disappeared because they cannot compete in pricing. In spite of gas costs, rural residents will save money driving to the supermarket in the nearest large town. Although with rising oil prices this may no longer be true, the Mom and Pops are long gone! I am betting that Casey's has the right idea at the right time. Of course competition will move in but Casey's has a good head start.